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20 February 2011

What is International Exhaustion?

The first sale of a copy of a copyrighted work exhausts the rights of the owner of the copyright in the work to control the resale of that copy, assuming that the first sale was a legal sale of a legal copy. The exhaustion of rights may be international, regional or national.

A misunderstanding of what international exhaustion ("IE") appears to be is that IE envisages that once a copy of a work is sold anywhere in the world the owner of the copyright in that work loses the right to resell it only in the domestic territory. In other words, assuming that India were to follow IE, if a copy of a work were sold in the US, the owner would lose the right of resale only in India.

Even though there has been a conflict in the US about IE, the general understanding of both academics and organisations who deal with international exhaustion is that the term "international exhaustion" means that the first sale of a copy of a copyrighted work anywhere in the world results in the exhaustion of rights in that copy everywhere in the world. Rights being exhausted everywhere in the world means that rights are exhausted everywhere including in the domestic territory, and as such, it is pertinent to note that references to the loss of rights in the domestic territory do not de facto preclude the loss of rights in other territories.

The understanding that rights would be exhausted only in the domestic territory (suggested by Pranesh Prakash) appears to be based his own train of thought and Article 6 of TRIPS, supported by a WIPO text. However, neither one of the sources actually supports his interpretation: Article 6, TRIPS simply lays down a hands-off policy as far as international exhaustion is concerned, and the WIPO link is quite simply silent on the subject of where rights would be exhausted.

For the purposes of dispute settlement under this Agreement, subject to the provisions of Articles 3 and 4 nothing in this Agreement shall be used to address the issue of the exhaustion of intellectual property rights.

Articles 3 and 4 deal with National Treatment and Most-Favoured-Nation Treatment, respectively. As far as Article 6, TRIPS is concerned, the fact is that the provision says nothing other than leaving decisions regarding exhaustion to states themselves. This appears to have been misinterpreted to mean that Article 6 does not allow for rights to be exhausted internationally, i.e. everywhere upon sale anywhere. However, such a conclusion is inaccurate since the Article does not disallow (or allow) anything -- it is silent. Reading between the lines of TRIPS as a whole, it may be possible to attempt to infer that TRIPS is inclined towards a having countries follow a particular form of exhaustion, however, TRIPS itself makes no explicit assertions either about what that position may be, and it definitely provides no guidance about where rights would be considered to have been exhausted if a country were to adopt IE.

The WIPO Link, however, explains what international exhaustion is stating:

... Where a country applies the concept of international exhaustion, the IP rights are exhausted once the product has been sold by the IP owner or with his consent in any part of the world. ...

As is obvious, the explanation of international exhaustion in the WIPO link does not clarify where rights would be exhausted of a country were to adopt international exhaustion.

As such, neither Article 6, TRIPS nor the WIPO link may be used to support the interpretation that the sale of a copy anywhere in the world results in the exhaustion of rights in that copy only in the domestic territory since a silent text cannot be interpreted to mean that it either endorses or negates a particular position. In this case, the WIPO texts, like many other texts on the subject of exhaustion, simply do not deal with the issue of precisely where rights are exhausted, and as such cannot be used to provide an answer to the question.

One the other hand, the texts which do deal with the issue the question of just where the application of IE causes rights to be exhausted all consistently indicate that the sale of a copy of a work anywhere in the world results in the exhaustion of the rights everywhere in the world.

Extracts of some of these non-copyright-specific texts have been appended below. In case there are any texts which do explicitly negate the interpretation below (and are not merely silent on the issue of where rights are exhausted), please leave a link to them in the comments.

The Meaning of International Exhaustion

ICC:
...the concept of international exhaustion ie. sale in any jurisdiction with the consent of the trademark proprietor exhausts (or negates) his rights arising under any other jurisdiction.

Valletti and Szymanski:
However, many developing countries are lobbying for the adoption of a policy of “international exhaustion” to be adopted at the WTO. This would mean that goods placed on the market anywhere in the world could then be resold anywhere else (e.g. French perfume could then be re-imported from Russia).

Tuomas Mylly
Researcher, University of Turku (Finland):The third exhaustion model is that of international exhaustion. This model basically implies that the placement of the products in the stream of commerce anywhere. Consequently, the owner of the intellectual property rights cannot restrict the subsequent movements of the products irrespective of where the products are first sold with his consent. ... International exhaustion takes extra-jurisdictional facts into account. This is not unusual in the area of intellectual property rights and does not amount to an extra-territorial application of the law. The opponents of international exhaustion doctrine have used the territoriality principle of intellectual property rights as one argument against parallel imports: marketing the products abroad should not affect domestic trade mark rights in any way in their view. However, the territoriality principle should rather be seen as a choice of law rule, only deciding the applicable law on the basis of the relevant territory.

Prof. Herman Cohen Jehoram:
Once the exhaustion principle is established in intellectual property law, the next question is, whether this operates only on a territorial, national or regional scale or whether on the contrary it has worldwide effect. In the latter case one speaks of international exhaustion. The contrary solution, the territorial exhaustion, means that the exhaustion ends at the national (or in the case of the EC at regional) borders.

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